DSTV Provides The Perfect Partnership For Netflix's Expansion In Africa

Netflix announced recently that it had added 5.2 million additional new subscribers this quarter, which is above the 3.2 million new subscriber targets that it set itself.This caused its stock to promptly jump nearly by 9 percent. More than 4 million of these new subscribers are international viewers. The company in January also said its net subscriber additions came in at 2 million domestically (U.S.) and 5 million internationally, well above what Wall Street expected at the time.

Netflix has had to figure out ways to grow its international audience as the company started to make a larger push there as it has increasingly captured the attention of its domestic viewers already.

Streaming has proven quite popular with Netflix subscribers. This however offers some limitations with regards to Netflix’s expansion in Africa. Even though Netflix is well primed for success in Africa, its expansion strategy however needs to focus on expanding its subscriber base in Africa through satellite TV and not through online streaming (since many Africans are likely to find themselves on Netflixwith buffering videos ).

Netflix’s major challenge in Africa currently is the slow internet service and expensive cost of internet data. The lack of affordable internet services in most African countries and the limited and slow internet connections in majority of these countries will make it quite a herculean task for Netflix to increase its market share in Africa if it does not restrategize.

Figures from Nairobi-based startupAngani show that a connection to the Kenya Internet Exchange for one gigabit per second costs internet service providers (ISPs) $350 per month, while the same amount of data from an international submarine cable costs a staggering $200,000. So even if a user pays an ISP for a fast internet connection in Kenya, data may flow much more slowly from overseas.

Also, in Nigeria, a 2 gigabyte data plan can cost as much as $20 per month. Regular viewing of Netflix will use several times that amount of data in a month. That’s a lot of money for data in a country where the average university graduate earns around $500 a month.

Watching movies or TV shows on Netflix use about 1 GB of data per hour for each stream of standard definition video, and up to 3 GB per hour for each stream of HD video. This can create headaches for Netflix subscribers in Africa who have a monthly bandwidth or data cap on their Internet service.

Also the lack of accessibility to internet by majority of the African populace will be a big issue for Netflix. Figures from the International Telecommunications Union has shown that just over 20% of Africans have internet access. According to WEF, only 1.4% of sub-Saharan Africa have fixed broadband while only 16.6% also have mobile broadband with a total of only 16.9% being active internet users.

With these major Netflix problems, the bright light lies in the fact that there is a huge market for satellite TV in Africa currently and we believe this will be the way Africans will enjoy good television for centuries to come. Within our estimation 5 out of 10 houses in urban Accra, (Ghana) alone have access to one form of satellite T.V.

Just like how a portion of Netflix subscribers in the USA still use DVD services, Netflix needs to also view Africa as a different case; in the second quarter of 2017, Netflix had 3.76 million DVD subscribers in U.S.alone.

Therefore a strategic partnership between Netflix and South Africa based Naspers (owners of DSTV and ShowMax); whereby Netflix acquires a minority (or a majority stake) in Naspers will position Netflix for market dominance in Africa.

From our estimations, Naspers' pay satellite TV; DSTV is in a right spot to help further Netflix’s agenda in sub-Sharan Africa. By taking a stake in Naspers, Netflix could build a working relationship with DSTV and this would allow Netflix to gain access to the over 11 million subscriber base of DSTV alone across Africa, as disclosed by Naspers’ payTV and entertainment unit.

Though DSTV is not an internet streaming service like Netflix, the advantage lies in the fact that it operates a satellite service and won't need internet for its connectivity and this could be very key to the success of Netflix in Africa.

This proposed working relationship between DSTV with Netflix could also push in new capital that will also enable DSTV to expand its satellite services to cover the entire continent in Africa and also to cut down on the high cost of its satellite TV services in most African countries. This could further boost subscriber base and make it more accessible to Africa’s surging middle class and also give Netflix access to a wide array of DSTV’s localized content.

DSTV’s subscriber base grew by 8% year on year from 10.2 million in 2016 to 11 million by March 2017. Nigeria leads its African footprint with 40% of the total subscriber base. By implication, DSTV and its subsidiary, GoTV put together have 4.4 million subscribers in Nigeria alone.

By forming a strategic partnership with Naspers, Netflix could also gain access to ShowMax, an online subscription video on demand (SVOD) service owned by Naspers. ShowMax has already employed a localisation strategy to take on established video on demand competitors with a focus on local African content. Already, ShowMax has announced that total views of TV shows and movies watched by its customers exceeded 10 million.

Netflix could also therefore tap into the vast local content owned by both DSTV and ShowMax through its alliance with Naspers.

Also. as part of the strategic partnership, DSTV subscribers will be provided or allowed to select a ‘Netflix Option’ on their DSTV decoders which viewers could visit and pay for movies or TV series they choose to watch, payments for the service could also be made by using Mobile payment services like M-Pesa. With credit card payment systems not popular in Africa ShowMax for instance accepts mobile money payments options which makes it easier for a subscriber in Africa to pay for content. This could be useful to Netflix as well looking at Africa’s huge mobile money market.

With the rise in Africa’s middle class and their increasing spending power as well as their aspirational attitude, Africa’s middle class is estimated to be around 123 million, that is 13% of the population. By 2060, this figure is projected to growto 1.1 billion (42% of the predicted population). Netflix’s market share in Africa could increase in 10-folds if it uses the satellite TV approach and a strategic partnership with Naspers to target the increasing middle class in Africa.